Key transport projects record large blow outs as demand grows for labour and materials
Key transport projects like the Metro Tunnel and the West Gate Tunnel have blown out, due to the rising costs of materials and labour. And experts are warning the problem is only going to get worse.
VIC News
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Surging construction costs on major Victorian transport projects have blown a $770 million hole in state and federal finances over the last year.
A massive pipeline of projects across Australia’s east coast is fuelling skyrocketing expenses by creating labour and material shortages.
Experts say the problem will only get worse, with years of major works to come on the nation’s building boom, sparking fears about the impact on the state’s Budget.
Last month, the state and federal governments signed a $518 million contract to upgrade a 4km section of the M80 Ring Road that was costed at $233.7 million in 2016.
It came after the bill for the Monash Freeway upgrade hit $1.1 billion, a $365 million increase.
The Herald Sun can also reveal:
• Costs on Victorian infrastructure projects are expected to soar by 7 per cent next year — more than any other state — according to leading cost management consultancy WT.
• Prices for some types of concrete have surged by 50 per cent in the last two years.
• Victorian soil conditions make tunnelling more expensive here than any other state.
• Major construction firms fear price hikes will make it too difficult to deliver future projects.
A Herald Sun analysis has found the M80 and Monash upgrades were among five transport projects which blew out by $770.2 million in the last year.
Early works on the Metro Tunnel also blew out by $95 million but this was covered by contingency funding.
Transport Infrastructure Minister Jacinta Allan said all eastern states were facing similar challenges.
“The cost of not building is far too great — and we make no apologies for delivering the road and rail projects that will keep our city and state moving,” she said.
In a new report, WT said Victorian projects experienced a 6 per cent “tender price escalation” this year, with further increases to come because of the cost of materials such as concrete and steel.
“Costs are likely to trend upwards over the next two years, with market capacity the biggest concern for delivery of the infrastructure pipeline in Victoria,” the report said.
WT said Victoria was “experiencing unprecedented volumes of work in planning and construction”, with more to come with the North East Link, the airport rail link and the Suburban Rail Loop.
A report by Allens, a law firm which handles major project contracts, found the private sector was less confident about delivering the country’s pipeline of work as demand soared for labour and materials.
“The concentration of major transport projects are in Melbourne or Sydney and these are the projects feeling these shortages most acutely,” Allens partner and head of infrastructure David Donnelly said.
“There hasn’t been great availability and people have been taken a little bit by surprise.”
Mr Donnelly said major infrastructure announcements had driven up costs long after companies agreed to prices for “five to seven years of activity”.
Deputy Prime Minister Michael McCormack’s spokesman said the “scale of current investment in transport infrastructure is likely to test market capacity and capability, with some pressures already materialising, such as shortages of experienced project managers and engineers”.
Cement, Concrete and Aggregates Australia state director Brian Hauser said the next year would test Victoria’s ability to provide resources for major projects, with the housing market also bouncing back.
“That comes with other transport costs as businesses are forced to supply materials from several hundred kilometres away,” he said.
“Sydney prices are twice as much as Melbourne but the gap is starting to close.”
The state government has faced difficulties delivering complex projects in dense urban areas.
But it has worked to cater for future demand by attracting experienced overseas construction operators, fast-tracking 11 quarries and building a $16 million tunnelling training centre.
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Opposition Leader Michael O’Brien said Victorian families would pay for the blowouts as Mr Andrews was “arrogantly saddling future generations with billions of dollars of debt”.
“Each Daniel Andrews cost blowout on a major project is paid for by Victorian families in higher taxes, more debt or cuts to services,” he said.